BP back in the fray as companies win Gulf leases

WASHINGTON — Oil and gas companies pledged $1.1 billion for drilling rights in the Gulf of Mexico on Wednesday during a high-stakes auction that demonstrated their enthusiasm for offshore development and marked BP's return to doing business with the federal government.

Fifty companies participated in the auction, which netted $850.8 million in victorious high bids for central Gulf drilling rights, with Freeport-McMoRan Oil & Gas LLC, Chevron Inc., and Murphy Exploration and Production Co. the biggest spenders.

BP, which was forced to sit out the past three auctions under its government contract suspension related its Gulf oil spill in 2010, spent $41.6 million, winning 24 of its 31 bids for Gulf tracts, including territory near its failed Macondo well. This was the first time since November 2012 that BP has participated in an auction of offshore U.S. leases — and it was only possible because the company signed a deal with the Environmental Protection Agency to lift the ban late last week.

The number of participating companies was down slightly, a reflection both of mergers among the companies active on the shallow continental shelf and the concentration of well-capitalized companies investing in the deep-water frontier.

The government's haul also was smaller than previous sales, including the last central Gulf auction, in March 2013, which netted $1.2 billion in high bids, and an unusual 2012 event that generated $1.7 billion.

Despite the modest decline, industry representatives, analysts and government officials said the sale showed that the industry's appetite for offshore acreage hasn't been dampened by surging energy development inland.

John Rodi, regional director for the Bureau of Ocean Energy Management, noted that there was “no shortage of dollars and investors who are interested in the Gulf of Mexico.”

“We have a very healthy and large number of participants, both in the shallow and deep water, and we're continually seeing new entry into the market as well,” Rodi said. “All indications are ... the Gulf of Mexico is a very great place to do business, in terms of the economic benefit that might exist. It's just an expensive place to do business.”

Randall Luthi, head of the National Ocean Industries Association, called the industry's commitment to the Gulf “remarkable, given the relative ease of producing oil and natural gas onshore, the expansion of competing offshore programs in other countries and some continuing regulatory uncertainty here at home.”

The auction unfolded over two hours in New Orleans.

The highest bid Wednesday came from Freeport-McMoRan, which pledged $69 million and beat out five other companies for the rights to drill a lone tract in the Atwater Valley leasing area. The region, home to at least five discoveries, was freshly surveyed last year.

Freeport, which has been working to diversify its portfolio and expand its oil and gas business, also was the biggest spender, having won 16 of its 17 total bids, with a final price cost of $321.4 million. The next-biggest spender, Chevron, scored $103.3 million in high bids, followed by Murphy Exploration and Production, which spent $49.8 million to win 16 bids.

Cobalt International Energy was the most aggressive bidder, with 46 offers worth $26.6 million. The company won all but two of the leases it pursued.

Some companies seemed to pare their bidding budget, which could reflect the cyclical nature of offshore investments as well as efforts to rein in capital costs in response to shareholder scrutiny.

For instance, after spending $220.3 million in seven high bids last March, Exxon Mobil this year concentrated on just three central Gulf tracts, with offers totaling just $55.4 million. Ultimately, it won just one of them, at a price of $4.6 million.

Shell Offshore, which last March put $166.3 million on the table — and walked away with $139.8 million in high bids — capped its offers in Wednesday's sale at $100 million.

And BHP Billiton Petroleum, which offered $198.5 million in winning and losing bids last March, on Wednesday put just $2.4 million in play.

Energy companies craft the bids in secret, after scrutinizing data and computer models drawn from seismic surveys that give only a hint of the geological structures — and potential oil and gas — underground.

While the central Gulf lease auction was the big event Wednesday, the Bureau of Ocean Energy Management also sold off a small sliver of eastern Gulf territory and unveiled three bids first filed as part of a western Gulf sale last August.

By pledging $21.3 million, Exxon Mobil won those three western tracts, which are near the U.S.-Mexico boundary and subject to the terms of a treaty that sets the framework for oil development in the region.

If Exxon Mobil discovers oil or gas at the site, the company will have to abide by the treaty's terms for determining if the underground reservoir spans the boundary into Mexico's territory and for divvying up the value of any resulting production.